How Health Insurance Works


Insurance companies establish their fees by estimating overall health care costs for a specific sector of the population. This includes the cost of primary care, secondary care, tertiary care, and Quaternary care. Primary care represents the bulk of the cost and includes the initial health care services provided by family physicians or general practitioners. Secondary care includes the services provided by medical specialists as well as acute care provided in emergency rooms. Tertiary care is specialized health care such as cancer treatment, neurosurgery and plastic surgery.

Quaternary care is an extension of tertiary care and includes such things as experimental surgery and uncommon diagnostic surgical procedures. Similar to other types of insurance, health insurance is a shared expense. Insured persons pay monthly premiums for the protection and insurance companies pay the claims on health care expenses. The health insurance policies outline what health care services and cost limitations are included in the contract.

Why is Health Insurance Expensive?

The successful operation of a health insurance reviews system depends on several factors, at the root of which is estimating health care costs and how many people will use health insurance. Call it risk analysis. It is somewhat similar to the way banking systems work; customer deposits are invested so the banks can make money. If all depositors demanded all of their money at once, there would not be enough money to pay them. Primary care covers a very large range of health care services and often includes the treatment of chronic illnesses such as heart disease, diabetes, depression, anxiety, COPD and arthritis. Because the population is aging and people are living longer, there are increasing number of older adults pushing the need for primary care health services. In addition, advances in medicine and medical technology is driving up the cost of medical treatment.

The result of this type of third party payment system is that physicians and patients are insulated from the actual cost of health care services. It encourages excessive costs and volume when it comes to health care treatments. It could be compared to people paying cash for everything they purchase versus using credit cards. Credit cards can easily mask the actual amount of spending. Paying cash gives people an immediate visual and, therefore, more accountability for their spending habits.

Types of Health Insurance Plans

Most health insurance plans are employer sponsored. There are also other plans through the military and U.S. Government. People who are self-employed purchase their own private insurance policies. Traditional health insurance plans include varying levels of deductibles. Generally speaking, the higher the deductible, the lower the premium. The downside of opting for lower premiums is more out-of-pocket health care expenses for the insured when the health insurance is used.

In addition, a recent study by Cigna stated that employers can save an average of $9,700 per employee over five years by changing to an account-based health insurance plan. Account-based health insurance plans seem to be successful for several reasons. Companies are saving money. People insured are benefiting with lower premium costs.

Although they are spending money on HSA’s, it is tax-free money. In addition, it makes them more accountable by allowing them to manage their own health care spending. People enrolled in account-based health plans tend to compare health care costs and ask more questions about proposed treatments than those who are insured with traditional health insurance plans.



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